We have never seen a set of analysts notes as negative and scary as these.
Prior to Brexit, economists at the major banks expected the UK to continue growing, albeit at a slower pace, into the foreseeable future.
Post-EU referendum, the mood has changed suddenly. “Recession,” “contagion,” and “stagflation” are the words they’re using now.
No need for further comment. Here are the lowlights:
Barclays, Fabrice Montagne et al: “Stagflation” ahead.
Unemployment to hit 5.9% in 2017. “The UK economy is likely to enter a period of stagflation… This decision to leave the EU, in our view, will exacerbate current elevated levels of uncertainty and thus amplify already slowing economic momentum.”
Barclays, Phillippe Gudin et al: “Growth to drop.”
“A clear and co-ordinated strategy to safeguard the rest of the EU and the euro area does not look to be present. Some proposals have been suggested by EU politicians since the UK vote, but building a common European response seems difficult. Consequently, we would expect uncertainty to spread and, euro area confidence and domestic demand to fall. We estimate euro area GDP growth to drop in 2017 to +0.4% vs +1.8% in our previous baseline of a ‘Remain scenario’.”
Deutsche Bank, George Saravelos. “The extreme market reaction in GBP is right.”
“We have consistently argued that the implications of Brexit for the UK and sterling in particular are very negative given the country’s large current account deficit financing needs. A period of exceptional uncertainty now starts for the UK.”
Bank of America Merrill Lynch, Robert Wood et al. “Hello recession.”
“The economy will turn down quickly. Now the UK has voted to “Leave” the EU the only thing we know is that we know very little about where UK economic and political arrangements are heading. We do not even know what the geographical boundaries of the UK will look like in a few years. This uncertainty is likely to be prolonged and will lead investors — including residential investors — to postpone decisions. The economy will turn down quickly in our view. We can have little confidence in any point forecasts at the moment. The sign of the effect on the economy of today’s vote is clearly negative given the economic uncertainty. But the size of the effect is less clear. That depends on the policy choices of the next few days: whether they fan or reduce fears. For instance, whether the “Leave” campaign stick to their pledges or show signs of rowing back on some of them in order to secure continued EU single market access. The situation will, in our view, be fluid for a long time yet.”
HSBC, Karen Ward et al:. “Some market contagion is likely”
“So this may shave off something in the region of 0.2ppts from the 1.5% growth we had been expecting in 2017. However, the impact could be larger if the UK goes down the route of a ‘hard exit’. This might make a tougher reaction by the rest of the EU inevitable, in terms of raising trade barriers and restricting UK access to the single market, with bigger disruptions to the economy. The impact on GDP will be orders of magnitude greater if there is political contagion that causes bond yields to rise, particularly in the periphery. The widening of spreads during the week commencing Monday 13 June when opinion polls in the UK swung towards a vote to leave suggests that some market contagion is likely. “
Deutsche Bank. “We would expect 2017 UK GDP growth to be 0.9%.”
That’s 1.2pp below the ‘remain’ scenario.
Citi, Tina Fordham et al: Lower UK GDP by 3 or 4 percentage points
“The likely economic cooling is estimated to be biggest in the UK, where our Leave scenario suggested we would lower our real GDP forecasts by 3-4pp versus our baseline in the next three years. In the euro area, it could shave 1-1.5pp off our GDP growth baseline. Elsewhere, the impact is likely to be more modest, but negative as well.”
Bank of America Merrill Lynch, Ethan Harris et al: Even America will get screwed in this one.
“Brexit could shave a few tenths from US growth The decision for the UK to exit the European Union is another in a long string of confidence shocks, hitting an already vulnerable US and global economy.”